Achieving Successful Technology Transfer

Aaron J. Gellman    Northwestern University, Evanston, IL 60208

Introduction

‘Technology transfer’ has become a popular phrase and a subject of great interest in myriad quarters. Not surprisingly, it has taken on various meanings. To consider it in any detail in the space available, the concept must be bound in several ways. First, technology transfer can be internal — that is, within the same enterprise (e.g., between the corporate R&D organization and an operating profit center). It can also be external (e.g., from one firm to another through, say, a licensing or joint venture arrangement). Second, it is assumed that external transfers follow strictly arm’s-length negotiations. Third, presumably all transfers are undertaken with the expectation that the technology will be utilized in the market, again as the result of arm’s-length bargaining. Also, successful transfer requires diffusion of the technology (or of what it can produce) and not just market introduction. It therefore follows that the interest of this paper is actually “technology transfer and utilization” (TTU).

Technology Transfer and the Process of Innovation

‘Technology transfer’ is but the outcome of a process called innovation. This process begins with an invention, an idea, or a concept and concludes with the introduction of a product or service in the marketplace on the basis of an arm’s-length transaction. Joseph A. Schumpeter, the first to appreciate the importance of innovation for economies and societies, ultimately concluded that innovation can best be defined as “something newly tried.” “Something” can be a product or a process — in modern vernacular, hardware or software, product or service. “Newly” refers to the market in which the “something” is to be advanced. Innovation is market-specific. The same product introduced in a different market represents the culmination of a separate process of innovation. “Tried” conveys that the innovative product or service is not a test article or prototype but rather the practical manifestation of a product or service, even if the underlying technology has many prior contemporaneous and subsequent deployments.

Much innovation takes place through the transfer of technology. As noted, such transfer can occur within an organization or involve different organizations (e.g., sellers and buyers). In a large enterprise, a technology or technique can be transferred between, say, its central R&D facility and a profit center unit of the firm. Or a firm (or government agency) can transfer technology by licensing it to another enterprise, public or private, in the same geographical area or in another. For the most part, this chapter will deal only with external transfers (although there are many attributes shared by the two types of transfer).

Supply-Push and Demand-Pull

For many elements of the process of innovation, from invention to market introduction, the driving force is either supply-push or demand-pull. Supply-push can be characterized as “I have, don’t you need?” while demand-pull is reflected in “I need, don’t you have?” Without doubt, the demand-pull force is the stronger of the two for moving technology into the marketplace through innovation. It is important to recognize that when considering technology transfer, the transferor represents supply-push and the transferee represents demand-pull. Thus it is far better when a potential transferee approaches an enterprise asking for help. (This is the case within firms as well as between enterprises.)

Often technology transfer is easier to achieve once the innovation has proved itself in some market. Finding a licensee or a joint-venture partner in another country or market becomes less difficult under such conditions. Put another way, achieving technology transfer is generally more challenging when supply-push is the primary force than when demand-pull is at work. But once success results from a supply-push effort, demand-pull becomes easier to galvanize for subsequent innovations. Depending on the nature of the market for a technology, it can be easier or more difficult to link supply-push and demand-pull in this way. For example, if there is a highly sophisticated, highly aggregated market to be served through transferring technology, supply-push has a higher probability of working than in markets at the other extreme of sophistication and aggregation. (This is one of the reasons that technology transfer has often been very successful when the transfer is to large government agencies or to very large firms producing a range of technology-intensive products and services.)

Notwithstanding the preceding, technology transfer is most readily accomplished through the exploitation of a demand-pull force. One of the more effective ways to generate such a force is to look for public or private enterprises that publish performance specifications for their inputs rather than design specifications. Performance specifications open the door to technology transfer and innovation in a way not otherwise possible. Indeed, if an enterprise lives or dies on the basis of the success it enjoys in transferring technology, that enterprise may well be wise to induce the target market to switch to performance specifications.

Promoting Technology Transfer

Achieving efficient, profitable technology transfer requires recognition of many of the fundamental “facts of life” regarding innovation and, therefore, of technology transfer. For example, one of the most effective ways to promote innovation and technology transfer and to achieve market diffusion beyond market introduction is to find a champion for the innovation or technology.

Innovation and technology transfer are people-processes; no matter how technology-dependent, no matter how technologically sophisticated, at base these processes must involve people who will be put in positions either to promote or to thwart them. Among the more powerful “people forces” available for advancing technology through its transfer to different settings is the champion for the technology or innovation. In fact, in most instances of technology transfer there is need for a champion from the originating enterprise as well as one in every transferee enterprise. Without these very special people, innovation is very difficult, if not impossible, to achieve based upon technology transfer.

But it is not the champions alone that matter. All along the path of technological innovation and transfer (and even diffusion) there are individuals who at one time or another can promote or obstruct, depending on how they are managed. It should always be recognized that it is easier to “prove” a cost associated with any given proposed transfer than it is to calculate the benefits that can be expected. This alone is sufficient to underscore the leverage individuals possess where innovation and technology transfer are concerned.

Mechanisms and Catalysts

The mechanisms and catalysts supporting the external transfer of technology fall into two categories: (1) overt and explicit mechanisms and (2) indirect or covert mechanisms.

Technology can be transferred to another entity through the outright sale of such technology or through a once-for-all payment that transfers title or the right to use such technology in all markets or in defined markets only. Then there is the licensing of technology through which the provider of the technology receives payment in one or a combination of forms, some of which are usually based on the market success of the transferee. Again, joint ventures can be a means for such transfer where the technology itself forms all or part of the equity of the transferor; similarly, a wholly-owned foreign subsidiary can be established explicitly to receive and exploit a technology.

Somewhat more complicated is transfer through the relationship that a prime bears to its suppliers of inputs. For example, the producer of a highly complex and technologically sophisticated product will often have developed designs and manufacturing techniques for components which are to be supplied by firms other than itself. Under such circumstances technology is transferred down the chain of supply rather than horizontally.

One of the more effective indirect or covert mechanisms for technology transfer has been patent documentation. Such documentation has proved to be highly catalytic for technology transfer in many cases. It is especially effective where the transfer is between different countries, given the great expense the unwilling (and probably unwitting) transferor must bear in order to pursue the matter in court. And, of course, there is industrial espionage, which everyone knows is quite ubiquitous but few are willing to discuss.

International setting of standards for products and processes often results in unintended transfers of technology. While the social benefits of such transfers may be substantial, individual generators of the technological possibilities that are plundered certainly suffer economic harm. Again, in such circumstances, it is usually very difficult for firms to pursue the matter given the cost and other constraints playing on the scene.

Reverse engineering is a time-honored if morally reprehensible mechanism for technology transfer. Over many years, even decades, some countries’ economic performance has been...